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Practitioners consider MTD ITSA compromise

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As Making Tax Digital for Income Tax Self Assessment rumbles ever closer, some practitioners said they would comply with the plans if HMRC compromised on increasing the threshold. Could a new threshold engage the MTD-averse accounting community?

30th Jun 2022
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When it comes to incendiary topics, nothing quite riles up the accounting community like Making Tax Digital. Over the years, HMRC’s gambit to enforce a digital approach has been met with scorn by a vocal contingent of the AccountingWEB community.

Yet, with the 2024 Making Tax Digital for Income Tax Self Assessment (MTD ITSA) start date barreling towards the profession, some in the community are now considering how to lessen the blow of the upcoming changes. 

One such idea, put forward by user kevinringer in a recent Any Answers post, was to “increase the MTD turnover threshold to £100,000”, admitting that they would switch from "complete objection" to “grudgingly work” with MTD if this compromise was met. 

Meeting in the middle

While not wanting to give into the changes that MTD will soon wrought on the profession, some members were receptive to the idea of an increase. However, it seemed to be understood that matching the ITSA threshold with VAT would make more sense overall.

Veteran user Ireallyshouldknowthisbut was first to throw their hat into the MTD ring, writing that it was “pointless having the VAT deadline different to the income tax one”. They also added that, by meeting practitioners in the middle on the issue, “HMRC gets their shiny new system without too much embarrassment, and taxpayers avoid a huge administrative burden.”

User Homeworker agreed, noting that “the VAT threshold makes sense initially but I would settle for anything over half that, as that would remove a huge number of landlords from the problem - at least for a couple of years until everyone gets used to this.”

Aside from the calls for a threshold increase, other users simply wanted HMRC to consider a voluntary approach, giving practitioners and clients the opportunity to adopt the changes in a more organic way. 

“No quarterly reporting and make it voluntary. If HMRC then concentrates on making their systems as good and easy as possible for the taxpayer and agents, then it will in time naturally be adopted.” said regular contributor JD. 

All or nothing

Others in the community were less willing to consider any form of hypothetical compromise, arguing that the whole project needs a complete overhaul before the profession can get behind the changes.

“If something has no value and is awful, why compromise - it's awful for everyone, no?” wrote JustAnotherUser, believing that any real change would require at least one of the larger institutes to become involved, as well as “an open letter and counter signed by 10,000 accountants and 100,000 small businesses.”

Hugo Fair also dived into the discourse on a compromise, writing: “That sounds logical... which is why it won't work (HMRC don't do logical).”

A significant burden 

Sharron West, of the Low Incomes Tax Reform group (LITRG), understood the community’s frustration over MTD ITSA, and has been growing concerned for unrepresented low income taxpayers who are still unaware of the mammoth changes on the horizon.

“We’re on the same page with most of the AccountingWEB commentators in that the threshold is just too low,” West said. “It’s bringing people into MTD who don't have any tax and national insurance liability, and yet they will still have to start quarterly reporting and complying with all the digital record keeping.”

And it’s this compliance with digital record keeping that West thinks will be the biggest hurdle for smaller businesses more comfortable with paper records and excel spreadsheets to complete their tax records. 

“For your average sole trader who's not earning much money, they're not going to need very sophisticated systems. But if you force them to buy one of three approved packages, then people are going to trip over and what comes out probably won't make a lot of sense which defeats the whole object of MTD.”

Holding fast

As for a potential increase of the threshold, West believed such a move would be HMRC's best way to ensure a smooth transition. However, there was disagreement that £100,000 would be an achievable figure. 

“We began by agreeing that the VAT threshold would be a sensible place to start. But again, it was fairly obvious that this was going to be too high.

“I think most organisations like ours have been saying to HMRC for years that [the threshold] is way too low. But they have no intention at all moving on it, especially as it's now in the legislation as well.”

Summing up LITRG’s stance on the topic, West felt nervous for the millions of individuals who are unaware of the coming changes, saying: “The biggest problem for a lot of unrepresented low income workers is they don't know it's coming, because HMRC haven't really got any direct comms out, which is really worrying.”

Replies (9)

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By Paul Crowley
30th Jun 2022 21:04

If threshold movement is temporary, then it is pointless.
If HMRC believes its own BS propaganda then voluntary (for ever) is the answer
If it is so good, and as Sage has said saves £17,000 a year, then people would be joyously lineing up to join.
The system that works now must still remain as there are a lot of tax returns and exceptions that will still need to be made
Punishing the poor and the IT illiterate and reluctant for the sole benefit of HMRC justifying its outrageous costs of implementing a system that is still currently incapable of delivery is inept and uncaring
Shame on the entire UK government

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By HLB
01st Jul 2022 10:34

Don’t care anymore. Between MTD and ever increasing audit regulations I’ve had enough and will be retired before it’s implemented like many other experienced practitioners. Then where will HMRC be when the profession says it hasn’t the manpower or experience to do all the work that will be generated with the result that submissions will be rushed, full of errors - basically rubbish. Oh I nearly forgot - all the decent inspectors in HMRC have beaten us to it and already gone and the ones left won’t know the difference or care. HMRC will then announce that MTD has been successfully implemented - job done. Move on.

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By bluebaron
01st Jul 2022 12:08

HMRC won't compromise though...until they have no choice when there is mass non-compliance with the project.

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Replying to bluebaron:
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By tedbuck
04th Jul 2022 11:08

The whole point of this and HMRC's intention is just that - mass fines result from mass failure and that is the way forward.

HMG daren't raise taxes more but needs the money to support the inflated civil service and its pensions so whither to go? Fines, fines and more fines. Late payment fines, late submission fines, gdpr fines (eye-watering those), Driving fines for everything you can think of to give local civil servants their salaries and pensions and on it goes. Don't really need Putin to take over - HMG will turn us into a state of zombies without his help. And most of it is needed to cover the grotesque inefficiencies in all the Government departments.

The fact that MTD will have two obvious drawbacks doesn't bother HMRC:-
1. The figures supplied by digital methods are likely to be less accurate as the programs are easy to misunderstand and the client's attitude is generally 'stick it in, claim the VAT and it will be OK'. Aside from such attitudes errors are easy to make and no doubt , encouraged by the 'Accounting Reports' they will send in their figures based on the program and we all know how meaningful that will be. After all the VAT gap has expanded with MTD!
2. Those on the borderline will think 'Blow this for a game of soldiers - I will retire' and then just work for cash - even now, post covid, there seems to be more suggestions that cash is the thing. Certainly in London it used to be that 'cash is King' and I bet it still is.

Well I shall retire, not to earn cash but because I have had enough of this nonsense, and watch the chaos that ensues. I expect that Jim will get a knighthood and a big handout and the chaos will continue.

What really upsets me is that I and all of you are expected to pay for this grotesque mess and the people who thought it up. I should have thought there were better things to do with the money.

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By indomitable
01st Jul 2022 12:39

Accountants and advisors and the institutes need to be more militant with HMRC.

We should all try and resist this madness until HMRC gets it's act together with all it's current failings. These are far more important for them to sort out.

No, no compromise, the institutes should push back strongly against government and HMRC in this.

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Replying to indomitable:
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By djtax
06th Jul 2022 15:17

Accountants more militant? How about we all threaten to send in ALL our 2022/23 SA Returns on paper (at least until the 31 October paper return deadline). I know we are pressured by HMRC to use electronic means but is there any actual legislation preventing us from submitting paper returns?

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By jon_griffey
05th Jul 2022 12:09

If they can just ditch the quarterly reporting then I can live with digital records. In fact we see very few manual books these days, so writing up 12 rental income statements into a compliant Excel format annually would be fine, and little change from what we do now. Quarterly reporting is just needless, unworkable madness.

I am really quite appalled that the professional bodies and well-known-commentators are not being more militant about this as it will take a wrecking ball to the profession and taxpaying public. All I am hearing from them is how splendid the emperors clothes are. They do us a disservice.

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Replying to jon_griffey:
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By Jo Nokes
07th Jul 2022 09:44

If you listened to Rebecca Bennyworth's webcast yesterday, she made it clear that HMRC are completely wedded to the £10,000 limit. She is clearly embedded with HMRC, having accepted an invitation to get involved some years ago. I expect she thought she could make a difference, but it seems she hasn't changed the thinking. She's OK with it, because she has put almost all her clients into the cloud. Bank feeds solve the problem, and make her role easier. She says she no longer has to deal with bags of paperwork in January. Well, there are clients who manage to bring me paperwork, or even spreadsheets, well before January so that is a rather irrelevant observation

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